Budget 2016: But could we run the economy differently..?

In today’s Budget announcement the Chancellor declared that his budget would see the Government “act now so we don’t pay later”, though many, including Jeremy Corbyn, are arguing that the chancellor is using some of the most vulnerable people in society to balance his budget.

The thrust of state economic and social policy is increasingly pro-rich and anti-poor.

The printing of money and low interest rates have increased the (unearned and mostly untaxed) wealth holdings of the affluent; the housing dice is being loaded further against tenants and in favour of owners; the net effect of the post-2010 tax and benefit changes has been to transfer income from the poorest quarter to the top 40 per cent.

The role of government has moved from playing Robin Hood to Robin Hood in Reverse, taking us towards a society ever more divided between extreme affluence and poverty.

Ministers justify these policies as necessary to rebuild the economy.

Deficit of demand

Yet while the post-2009 monetary boost prevented further meltdown, it has failed to tackle the central weakness of the economy – a gaping deficit of demand – and is keeping the economy alive by unsustainable asset bubbles. Low interest rates have failed to boost investment, private and public.

When Mario Draghi, head of the European Central Bank, announced more monetary medicine last week, he declared that to reap the full benefits, ‘other policy measures must contribute decisively’.

“while the post-2009 monetary boost prevented further meltdown, it has failed to tackle the central weakness of the economy”

Central to those additions should be policies that tackle inequality directly by building a new ‘sharing economy`: one that ensures that the fruits of growth are more equally distributed.

Social wealth funds

One of the most effective routes to a sharing economy would by the creation of one or more social wealth funds. Such collectively held financial funds are a potentially powerful new tool in the progressive policy armoury.

They would help reduce the concentration of capital ownership – a key driver of the rising income and wealth gap – and would ensure that a higher proportion of the national wealth is held in common and used for wider public benefit.

Having failed to create such a North-Sea oil financed fund in the 1980s, Britain’s first social wealth fund should now be created by halting the privatisation juggernaut and pooling all publicly owned commercial assets into a single ring-fenced fund, a giant pool of commonly held wealth.

This would end today’s politically expedient sell-off of public assets, preserve what remains of the family silver and ensure that the revenue from the management of such assets is used to boost essential economic and social investment.

Universal basic income

Another key element of a sharing economy should be the introduction of a universal basic income, a new fail safe system of social security that could replace much of the existing and increasingly punitive model of income support.

By restoring universality as a core principle, such a scheme would offer much greater security in what is set to become an increasingly fragile labour market. A basic income, together with one or more social wealth funds, would help ensure that the potential productivity gains from the gathering automation revolution, with machines displacing jobs, are shared by all.

“a sharing economy also needs a radical shift in economic management”

But a sharing economy also needs a radical shift in economic management. Low interest rates should be used to boost public investment, now less than 2% of GDP. Better targeted monetary policy needs to ensure that financial stimulus actually boosts economic activity.

None of these ideas are utopian or untried. Successful public ownership funds have been created in a diversity of nations, from Austria to Singapore. Basic income schemes are about to be piloted in Ontario and in several European cities.

There is now a growing debate about the need for more radical economic instruments, such as helicopter money – aimed at putting extra money directly into people’s pockets. Without a fundamental change in direction, Britain will become ever more unequal and ever more prone to crisis.

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